Hard things reduce competition
Do hard things. Value is created whenever demand is higher than supply. The supply for easy things are usually abundant. The supply for hard things are more often limited.
Why do we watch football and admire David Beckham, etc? Because it is super hard to be as good as them in the sport.
Why do we adore musicians or singers? Because we appreciate their amazing art or voice. It is hard to be like them.
Why do highly technical employees and C-level executives get paid high? Because it is hard to have those skills and they are valuable to a business.
The same thing applies to business. If it is not hard enough, it is usually not so valuable. The greatest businesses have their moats.
A moat is a deep wide ditch, usually filled with water, typically surrounding a fortified medieval town, fortress, or castle as a protection against assault. Only a business which can defend its unique value proposition can thrive for a long time. When they thrive, they can have more resources to innovate.
Examples of business moats:
- Capital. Some businesses require huge capital to start. Telecommunication providers require intensive early capital. This is the reason why only a few key players exist in a country, they have to consolidate eventually. E-commerce businesses like Amazon and Alibaba require dominance in a country or region to be able to be very profitable for a very long time. This is the reason Amazon is having years of losses in order to keep growing.
- Network effects. Facebook and other social networks have network effects. The more users the platform contains, the more valuable it gets. The more connections created in a social network platform, the more likely the users want to continue using it. Network effects also appear in offline businesses, such as retail or supermarkets. The more complete the supermarket is, the more valuable it is for the customers.
- Technological expertise. Companies who can provide highly technical services and products have strong moats. Talents are limited in this world. Companies who can gather the best talents can build a highly defensible business in today’s world.
- Connection. Several businesses are very simple, but it requires valuable connection with local governments or businessmen. These types of business make a lot of profit, yet it is usually exclusive to a few people/families. It happens mostly in developing countries.
- Brand. Sometimes, the strongest power of all is people’s perception towards a brand. Many luxury brands like LV and Dior have demonstrated the power of brands. A brand is very powerful as it dominates someone’s mind space. It dominates memory and perception of value. It is really hard to build a strong brand, especially brands that dominate globally.
- Niche problem-solution expertise. These businesses are built from the expertises of the founders. They are usually professionals who have vast experiences in a certain industry and able to provide a solution to a problem that not everyone understands.
- Distribution. Every product needs a distribution channel. Businesses who dominate the distribution channels are destined to have a better competitive advantage. Sometimes we focus too much on the product or service and forget the importance of distribution. Microsoft has a very strong distribution channel. It installs its Windows OS to every PC except Apple products. How strong is that? Average PC users usually have only one choice. Of course, some may opt for Linux, etc.
I can conclude that for a business to thrive for a long time, it requires at least one moat. If it wants to become a global company, it requires several moats. Facebook has demonstrated a combination of several business moats such as huge capital, network effects, technological expertise, connection, and brand. It is not a coincidence that one of the hardest things to do in this world is to compete with Facebook. The chance to win the competition is near to zero.
Does your business have a moat? If it doesn’t, you might have to create one. Capitalism is a very efficient system. Everyone is gonna innovate and compete to be able to capture their own share of the market.
Hard things aren’t always meaningful
However, not every hard thing is meaningful to pursue. It is very hard to bend a spoon with fingers, but it doesn’t add a meaningful value to someone’s life.
Everything starts from creating value or adding value to someone’s life.
This is also why Scalability is overrated.
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